Suddenly, “depreciation” seems too kind a word. The peso is simply collapsing.
Months ago, I earned the ire of pro-administration trolls by forecasting the peso could break past the $1:P60 level. Now this is history.
About two months ago, in this space, I argued that the peso could fall to $1:P65 by the end of this year. That forecast was too merciful. Last Tuesday, the peso broke way past the $1:P64 level.
The current worst case scenario anticipates the $1:P70 level to be breached soon. No one seems to be talking about resistance levels anymore. The currency exchange rate has become the barometer of how badly things could still turn.
If the peso is on a continuing nosedive, it is no longer rational to think that foreign investors would come in, exchanging their hard currency for the worst performing one, to rescue our economy.
Investors are a hard-nosed bunch. They consider the stability of economies they might want to invest in. The calculate the risks – including, in our case, political risks. They inquire into how efficiently the domestic economy is managed and how honest the politicians are. They look at the costs of doing business here – including the cost of power.
Each time President Marcos Jr. travels with his entourage, the enterprise is justified as expeditions to attract investments. How much investments actually materialized? Investors do not bring their hard-earned money to a soft, badly managed economy simply because the head of state visited.
The peso’s rapid fall brings a grim atmosphere to our business community. This year is written off as lost. Next year does not promise to be much better. Businessmen are looking to 2029 for any meaningful recovery.
Marcos Jr., with his negative job approval ratings, cannot possibly inspire a flagging economy. We will have to choose a new leader who could do the job of rebuilding confidence in the economy. The 2028 elections will necessarily be about who could best rally our people to rise from the ruins.
The Palace mouthpiece tries to convince our people that the falling peso and rising inflation is due to “geopolitical factors.” If this is so, why do we have the worst performing currency and highest inflation rate in a region universally dependent on imported fuel?
“Geopolitical factors” is a cover-up phrase for “economic mismanagement.”
The peso is weak and inflation is high because the ruling faction did not have what it takes to exercise economic statesmanship. In the space of one administration, we are on the verge of doubling our national debt. The borrowed funds were looted rather than invested wisely to build a strong basis for economic growth.
The current administration failed the nation. Our productivity remains stagnant. Our food costs are beyond reach.
The collapse is self-inflicted.
Cost overruns
In many ways, this looks like shifting the furniture while the Titanic sinks.
Vince Dizon has been returned to the Department of Transportation. Erstwhile transportation secretary was given the DPWH portfolio. How this will alter the trajectory towards economic collapse is anyone’s guess.
The stagnation that now grips our domestic economy has been due to underspending in the public sector. This happened after the flood control scandal swept away government credibility. Projects were reviewed. Plans were revised. Spending cannot happen while this is being done.
Many of the major infra projects have fallen behind schedule because Congress mangled the budget for three successive years. Foreign-assisted projects were moved to “unprogrammed allocations” to produce a fiscal fiction that allows funds to be moved to the pet projects of legislators. The penalty imposed on us in the form of commitment fees run up to the billions because the budget process was criminally abused.
A horrified Supreme Court described the budget abuse “unconstitutional.” The House version of the 2027 national budget suffers from the same defects as the budgets of the three years preceding. Congress has just two months to avert reenactment of the previous (defective) budget.
Meanwhile, the rapid erosion of the peso and a high inflation rate threaten to make the proposed 2027 budget academic. The cost of everything needed to restart our infra program outstrips the original calculations in the budget document being considered.
The road program alone faces cost overruns. Graders, pavers, rollers and dump trucks all run on diesel. Asphalt, used on most roads, is a petroleum-derived product. The prices of cement, steel and all the other inputs needed to restart our infra program have outstripped every existing calculation.
We need more to money to build the infra our economy direly needs. But we are mired in debt as things stand. A weaker economy will translate into weaker revenue collections.
If we cannot do more with less, we will have to do less. This will not satisfy the level of public sector spending necessary to revive our economic performance. It will not create the jobs to soak up unemployment. It will not create the market demand to keep our small businesses in play.
It is a big enough challenge to clean up the 2027 budget and defend it from corruption. It is an even bigger challenge to fund the projects we need even if they are kept clean.
The new cost regime, brought about by past sins and poorly executed fiscal policy, cannot make infra the decisive growth driver.